Why is my sale of Tax exempt mutual fund treated as capital gain?

[charleswyatt]

I got a 1099-B form from USAA showing I had liquidated $15000 on 3-19-2016. TurboTax is showing this as taxable event

[MR_ED · Accepted solution]

The tax exempt dividend paid by the fund is not taxable but any capital gain if you sell shares is a taxable event.

[bwa]

It is a taxable event.  On (as example) tax free bonds, the interest is tax free.  The gain on sale is not.